Cases of the Month
Significant Cases and Decisions Impacting the Construction Industry
By: Ira Genberg and Ryan Stinnett
1. Waivable Technicality in Bid for Public Works Contract, Hill Bros. Constr. & Eng’g Co. v. Miss. Transp. Comm’n, 2005 WL 487458 (Miss. 2005).
* What the Court Considered: A state transportation commission solicited competitive bids for the construction of a highway interchange. After the bids were opened, it was discovered the low bidder had failed to sign the signature page of an addendum to its proposal. In all other respects, however, the bid was properly submitted. A losing bidder challenged the award of the contract to the low bidder on the basis of the deficiency.
* What the Court Said: Because the commission had the right to waive any bidding technicalities, the contract was properly awarded to the low bidder.
* What the Opinion Means: The low bidder’s failure to sign the signature page of the addendum was a non-material deficiency since the bid was proper in all other respects. Furthermore, although the signature page was unexecuted, the contractor indicated its intent to be bound to the terms of the addendum by its furnishing a 5% payment bond to the commission. Also, the commission properly considered the fact that the low bid was approximately $7 million lower than the next lowest bid. To award the contract to the protesting bidder would defeat the purpose of the state’s competitive bidding procedure, which is to “obtain the best results for the lowest cost, the greatest value for the fewest dollars.”
2. Enforceability of Blanket Liens in Colorado, Compass Bank v. Brickman Group, 107 P.3d 955 (Colo. 2005).
* What the Court Considered: A contractor filed a blanket lien on 9 unsold condominiums in a complex of 48 total units. At the time of trial on the lien, only 3 units remained unsold and those units had been acquired by a bank through foreclosure. The bank sought to invalidate the lien on the basis that it covered more than one, but fewer than all, of the units that benefited under the construction contract.
* What the Court Said: The blanket lien could include, and be enforced against, fewer than all of the properties so long as there could be a proper apportionment of the debt.
* What the Opinion Means: Unlike many other states, Colorado’s lien statutes are construed liberally and according to equitable principals. Therefore, a lien will not be invalidated simply because it includes fewer than all of the benefited properties, if a proper apportionment of the debt can be made. Here, a proper apportionment of the debt could be made by attributing to each unsold unit a proportional share of the outstanding contract balance.
3. Contractor’s Duty to Inspect All Documents Referenced in Specifications, Appeal of Billington Contracting, Inc., ASBCA No. 54147 (2005).
* What the Board of Contract Appeals Considered: A contractor was awarded a contract to perform maintenance dredging of the Duluth-Superior Harbor. The contract specifications stated that “[s]ome hard packed sand may be encountered in some areas.” The specifications also provided that records of previous dredging would be made available in Detroit, which was 750 miles away from the project site. The contractor did not review those records, the most recent of which indicated the presence of a large amount of hard packed sand. In performing the work, the contractor encountered a large amount of finely packed hard sand that significantly delayed the work. The contractor asserted entitlement to an equitable adjustment for a differing site condition.
* What the Board Said: Because the contractor had failed to review the prior dredging records, it was not entitled to an upward adjustment of the contract price.
* What the Opinion Means: To recover for a differing site condition, a contractor must show that the condition was not revealed by the contract documents. The contract documents include, among many other items, all documents referenced by the specifications. Here, the contractor failed to review the dredging records, which were referenced in the specifications and made available for inspection.
4. Duty to Provide Technical Support Under Approved Contractor Agreement, J.S. Sweet Co. v. Sika Chem. Corp., 400 F.3d 1028 (7th Cir. 2005).
* What the Court Considered: A contractor hired to repair a bridge purchased epoxy from a chemical manufacturing company. Following the repair, the epoxy began to peel away from the bridge surface. Thereafter, the contractor and the manufacturer entered into an approved contractor agreement, whereby the manufacturer agreed to train the contractor in applying the epoxy. In litigation between the contractor and the project manager, at issue was the contractor’s alleged misapplication of the epoxy. The contractor subsequently sued the manufacturer for breach of the approved contractor agreement, alleging that the manufacturer had failed to provide technical support in the form of explaining to the contractor why the epoxy had peeled from the bridge.
* What the Court Said: The approved contractor agreement did not obligate the manufacturer to provide technical support to the contractor.
* What the Opinion Means: According to the contractor, the duty to provide technical support derived not from the agreement itself but from a one-page flier, entitled “Approved Contractor Program Guidelines,” which was distributed with the agreement. However, because this flier was neither signed nor incorporated by reference into the parties’ contract, the manufacturer could not be held to the terms of the flier.
5. Contractor’s Liability for Work Ordered by Its Project Superintendent, Wedeking Constr. Co. v. Hillebrand Constr., 2005 WL 597028 (Iowa Ct. App. 2005).
* What the Court Considered: A contractor building an apartment complex hired a new project superintendent midway through the project. The contractor sent a letter to all subcontractors making them aware of the new superintendent. The letter mentioned no limitations on the new superintendent’s authority. Thereafter, the superintendent hired a subcontractor to re-grade an access road. The contractor denied the subcontractor’s application for payment for this work and claimed that the new superintendent did not have authority to hire the subcontractor.
* What the Court Said: Because the superintendent had apparent authority to hire subcontractors, the contractor was required to pay for the disputed work.
* What the Opinion Means: The letter announcing the new superintendent to the subcontractors mentioned no constraints on the superintendent’s authority. In addition, the contractor had previously paid for work ordered by the superintendent. These facts were sufficient to establish that the new superintendent had apparent authority to hire the subcontractor.
6. Contractor’s Duty to Timely Notify Owner of Differing Conditions, River City Constr., Inc. v. ABC Paving Co., 2005 WL 599713 (Mich. Ct. App. 2005).
* What the Court Considered: A contractor hired a subcontractor to perform drilling in connection with the installation of water pipes for a township. The subcontractor reserved the right to renegotiate the subcontract in the event it encountered rock. When the subcontractor later encountered rock, it submitted a higher price quote to the contractor. The contractor indicated it had no problem with the pricing and instructed the subcontractor to continue drilling. After several days, the contractor informed the township that an additional $152,265 was needed for the work. The township offered only $13,803, which the contractor accepted. The contractor never paid the subcontractor for its additional drilling costs.
* What the Court Said: The contractor was liable to the subcontractor for the additional drilling costs, but the township was not obligated to reimburse the contractor for its payment of those costs.
* What the Opinion Means: The contractor argued that because it was acting only as a middleman between the township and the subcontractor, it was entitled to reimbursement from the township. However, the prime contract obligated the contractor to stop work and promptly notify the township of any differing subsoil conditions, such as the rock encountered by the subcontractor. Because the contractor failed to abide by the notice provision, it was not entitled to reimbursement from the township.
7. Enforceability of Pay-When-Paid Provisions in New York, Hugh O’Kane Elec. Co. v. Mastec N. Amer., Inc., 791 N.Y.S.2d 526 (N.Y. App. Div. 2005).
* What the Court Considered: A general contractor sought to dismiss a subcontractor’s claim on the basis of a “pay-when-paid” provision in their subcontract. The subcontractor argued that such provisions are not enforceable in New York. However, the subcontract contained a Florida choice-of-law clause, and Florida enforces such provisions.
* What the Court Said: Because the choice-of-law clause was applicable, the pay-when-paid provision was enforceable in the New York court.
* What the Opinion Means: New York courts enforce choice-of-law clauses, provided the law chosen bears a reasonable relation to the contract and does not violate a fundamental public policy of New York. Here, the reasonable relation requirement was met because the contractor was domiciled in Florida. After reviewing the history of pay-when-paid provisions in New York, the court further concluded that opposition to such provisions is not a “deeply rooted tradition” of the state. Therefore, enforcement of the pay-when-paid provision did not violate a fundamental public policy of New York.
8. Architect’s Liability for Negligent Misrepresentation, Bilt-Rite Contractors, Inc. v. The Architectural Studio, 866 A.2d 270 (Pa. 2005).
* What the Court Considered: The low-bid contractor on a public project sued an architect for negligent misrepresentation arising from plans and specifications the architect had prepared to be used for bidding. The plans provided for the installation of aluminum curtain wall and sloped glazing systems, which the architect represented could be installed with the use of normal and reasonable construction means and methods. After commencement of the work, however, the contractor discovered that special construction methods would be needed to install the required systems.
* What the Court Said: Because the architect was in the business of providing information to others for guidance in their business, it could be liable on the negligent misrepresentation claim.
* What the Opinion Means: Pennsylvania has traditionally followed the economic loss doctrine, which holds that a tort plaintiff cannot recover for purely economic damages. However, where the defendant is in the business of providing guidance to others in their business transactions, it may be liable in tort for purely economic losses. Here, the architect knew its plans and specifications were to be provided to contractors for the purpose of developing the contractors’ bids. Accordingly, the architect could be liable for negligent misrepresentation, even though the parties were not in contractual privity.
9. Application of the “Peculiar Risk Doctrine” in California, Bell v. Greg Agee Constr., Inc., 23 Cal. Rptr. 3d 33 (Cal. Ct. App. 2004).
* What the Court Considered: An employee of a roofing subcontractor was injured when a gust of wind caused a wall to fall on him. The subcontractor was not carrying workers’ compensation insurance at the time of the employee’s injury. The employee sued the general contractor under the “peculiar risk doctrine.”
* What the Court Said: The employee could not sue the non-negligent contractor under the peculiar risk doctrine.
* What the Opinion Means: Under California law, non-negligent hirers of independent contractors may not be held vicariously liable for injuries to the independent contractors’ employees since those employees have access to compensation under the Workers’ Compensation Act. Here, the employee argued that this rule should not apply because the subcontractor was not carrying workers’ compensation insurance at the time of injury. The court disagreed, citing the fact that workers’ compensation is available to all injured employees regardless whether their employers carry workers’ compensation insurance.
10. Definition of “Subcontractor” In CGL Policy, Limbach Co. v. Zurich Amer. Ins. Co., 396 F.3d 358 (4th Cir. 2005).
* What the Court Considered: A mechanical subcontractor hired to install an underground steam line contracted with a company for the production of the steam pipe. Due to the subcontractor’s improper handling of the pipe, a leak developed in the line years later. The subcontractor was directed to replace the damaged pipe. The subcontractor thereafter sought to recover under its Commercial General Liability (“CGL”) policy the cost of replacing the damaged steam pipe. The insurance company denied payment on the basis of the “your work” exclusion.
* What the Court Said: Because the pipe manufacturer was a subcontractor, the “your work” exclusion did not apply.
* What the Opinion Means: The CGL policy excluded property damage to “your work,” referring to work of the policy holder. However, the exclusion did not apply if the damaged work “was performed on your behalf by a subcontractor.” Here, the pipe manufacturer was properly considered a subcontractor because it custom-made the pipe in accordance with the project specifications. Also, the manufacturer provided on-site installation instructions.
Ira Genberg is a Senior Partner at the Smith, Gambrell & Russell, LLP law firm in Atlanta, Georgia, and also General Counsel for Associated Owners & Developers (AOD), McLean, Virginia. Ryan Stinnett is an Associate at Smith, Gambrell, & Russell, LLP. For more information or if you have any questions, contact us at: firstname.lastname@example.org.